Posted
by

The First Circuit has endorsed key principles that favor policyholders in insurance coverage disputes — principles that can frequently be used to help insureds in construction cases. So, this new case is worth a look. In Oxford Aviation, Inc. v. Global Aero., Inc., 2012 U.S. App. LEXIS 10101 (1st Cir. 2012), the U.S. Court of Appeals for the First Circuit vacated the district court’s decision which found that a carrier had no duty to defend claims involving alleged faulty workmanship. Relying on Maine law, the court held strong to the concept that even the remotest possibility of coverage triggers an insurer’s duty to defend.

The details, after the jump.

Airlarr hired Oxford to perform repairs and installations on its airplane. After picking up its restored plane, Airlarr sued Oxford for breach of contract, breach of express and implied warranties and various state-law claims. Airlarr alleged that, due to Oxford’s “negligence and faulty performance,” one of the plane’s side windows cracked on Airlarr’s flight home from Oxford’s Maine facility. Airlarr also listed a number of “defects and other substandard work,” including uncomfortable seats, leaking fuel injectors, a cracked turbocharger, and an improperly installed carpet. But the cracked window was central to the Court’s decision to overturn the district court’s ruling.

Oxford tendered the complaint to its CGL insurer, Global Aerospace, and requested that the insurer provide a defense. But Global disclaimed both coverage and its duty to defend Oxford in the Airlarr lawsuit. Oxford then sued Global in a Maine state court, and Global removed the case to federal district court. The district court granted summary judgment in favor of Global, holding that Global had no duty to defend because Airlarr’s claims fell within the CGL policy’s exclusions. The First Circuit disagreed and held that the district court should have considered the issue of initial coverage instead of relying solely on the policy’s exclusions.

Recognizing that Maine interprets coverage terms like “accident” and “occurrence” broadly – as opposed to courts that rely on these terms to exclude coverage for faulty workmanship – the First Circuit concluded that the damage to the plane’s side window should be considered an “accident” and an “occurrence” and be covered under Coverage A of the policy. The court, therefore, did not interpret these terms narrowly to exclude coverage for faulty workmanship.

The court reiterated the basic principle that an insurer’s duty to defend is generally broader than its duty to indemnify. The court insisted that an insurer has a duty to defend even if the possibility of coverage is highly unlikely. After discussing the exclusions that Global relied on, the court concluded that, because the policy covers at least one of Airlarr’s claims, Global has a duty to defend the entire lawsuit: “Here, at least one scenario relating to the cracked window, occurring in flight and away from Oxford’s facilities, does fall within coverage and could plausibly avoid all cited exclusions.”

To determine whether any exclusion could negate the policy’s coverage of the damaged window, the court analyzed possible exclusions. The court held that exclusion (j)(4), which excludes from coverage “[p]roperty damage to … [p]ersonal property in the care, custody or control of the insured,” did not exclude the damaged window because the damage occurred after Oxford returned the plane to Airlarr. Additionally, in discussing exclusion (j)(6) (the “your-work” exclusion), which excludes a “particular part of any property that must be restored, repaired, or replaced because your work was incorrectly performed on it,” the court noted that this exclusion could conceivably apply to the damaged window. However, by its terms, the your-work exclusion does not apply to “property damage occurring away from premises you own or rent and arising out of your product or your work.” Because the damage to the window occurred in-flight and in Airlarr’s possession, the court concluded that the your-work exclusion did not exclude coverage of the cracked window.

The court quickly dismissed exclusion k (the “your-product” exclusion), which excludes “[p]roperty damage to your product arising out of it or any part of it,” since the cracked window was never alleged to be Oxford’s product.

The court also discussed exclusion l (the “products-completed operations hazard” exclusion), which excludes “[p]roperty damage to your work arising out of it or any part of it and included in the products-completed operations hazard.” The court noted, however, that the damaged window was not alleged to be, nor was there any indication that it was included in, Oxford’s work. Therefore, this exclusion also could not apply to the damaged window.

In concluding that the policy’s exclusions could not exclude coverage for the damaged window, the court held that Global had a duty to defend even though Global would likely be on the hook for little, if any, indemnification if Airlarr prevailed in the lawsuit: “If Airlarr proves its case, it seems unlikely that there will be much, if any, indemnification since most of the claimed injuries appear likely to be covered by exclusions. But the duty to defend is triggered by any realistic possibility of any damage that might be within coverage and outside the exclusions and the damaged window creates that prospect.” Notwithstanding the exclusions, therefore, the court held that Global had a duty to defend.

Posted
by

Perhaps they saw that Scott Walker defeated a recall attempt in Wisconsin and decided that momentum is moving against organized labor. Whatever the thought process, a log jam has been removed and a major project can move forward. On Wednesday, June 6, the Metropolitan Washington Airport Authority (WMAA) agreed that Phase II of the Dulles Rail Project (extending the commuter rail line from Wiehle Avenue in Reston to Dulles Airport) can proceed without the pro-labor provision that has jeopardized project funding. The provision at issue would have awarded points to potential bidders that promised to use union labor on the project. Contractor bids are evaluated by WMAA, at least in part, on points awarded for any variety of factors, such as prior project experience and the strength of the contractor’s technical proposal. Thus, award of the project might not necessarily have gone to the lowest bidding contractor. For more than a year the debate raged, even reaching the floor of the Virginia Assembly. Virginia, a right to work state, threatened to withhold its share of project funding if MWAA insisted on the pro-labor provision. Already, Governor McDonnell has pledged $150 million from Virginia at the start of 2013 now that the pro-labor provision has been taken off the table. Those that applaud MWAA’s decision point out that the project costs will likely be lower, leading to lower costs both for taxpayers and commuters.

With this hurdle aside, the path is cleared to extend the Silver Line to Dulles Airport. The Loudoun County Board of Supervisors has yet to approve its portion of funding to carry the Silver Line past Dulles and into Loudoun County.

Posted
by

Under the Texas code, the workers’ compensation exclusive remedy bar applies up and down: barring injured employees of subcontractors from bringing common law tort suits against a general contractor which provided workers compensation insurance, and also in reverse, barring injured employees of the general contractor from bringing suit against a subcontractor, even when the employees are covered under separate workers’ comp policies. So says the Texas Court of Appeals in Garza v. Zachry Construction Corp., 2012 WL 1864350 (Tex. Ct. App. May 23, 2012).

In Garza, an employee at DuPont’s Ingleside, Texas plant was injured when the railcar mover he operated came loose. He received workers’ compensation benefits through a policy provided by DuPont, and later brought common law tort claims against a subcontractor and two of its employees for negligence in causing the accident. The subcontractor, whose employees were covered by a separate workers compensation insurance procured by DuPont, successfully argued that DuPont was their deemed employer and the injured worker and subcontractor employees were deemed fellow employees. In this way, the subcontractor was shielded from such actions by the workers’ compensation exclusive remedy bar contained in Texas Labor Code section 408.001 as made applicable to subcontractors by Labor Code section 406.123. On appeal, the Court of Appeals agreed.

Garza, the injured employee, argued that the exclusive remedy bar could not apply where the subcontract specified that the subcontractor’s employees were not employees of DuPont, Garza’s employer. But even if they were deemed employees for purposes of statutory workers compensation benefits, the bar could not apply where the subcontractors were covered under a separate workers’ compensation policy than that covering DuPont’s employees. Lastly, if the statute does immunize the subcontractor, then it violates the open courts guarantee (assuring that a person bringing a well-established common-law cause of action will not suffer unreasonable or arbitrary denial of access to the court) in the Texas constitution.

In rejecting these arguments, the appellate court first ruled that the subcontract at issue required DuPont to procure workers’ compensation coverage for Zachry’s employees, “thereby, creating the legal fiction of DuPont as the ‘deemed employer’ and Zachry and its employees as ‘deemed employees'” under Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 438 (Tex.2009) and HCBeck, Ltd. v. Rice, 284 S.W.3d 349, 352 (Tex.2009). The subcontract, however, did not provide these same “deemed employees” with the other more traditional employee benefits enjoyed by DuPont’s actual employees. Secondly, the court ruled that nothing in the workers compensation statute, section 406.123, “specifies that when a general contractor purchases a workers’ compensation policy for its own employees and also purchases a second policy for its subcontractors, then its own employees and its “deemed” employees may freely sue each other simply because they receive their coverage under different policies, albeit from the same “employer” for work performed at the same job site.” According to the court, such an interpretation would be contrary to the purpose of the legislation – which is to encourage coverage of employees. Finally, the court concluded that Garza’s rights under the open courts provision are not violated because “[t]he workers’ compensation benefits he receives from his employer, which also provides those same benefits to its subcontractors, is an adequate substitute for his right to bring his tort claims against those subcontractors.”

Posted
by

It’s standard fare for contractors and subs to be required to provide certificates of insurance (COI) verifying that the insurance requirements specified in their contracts, e.g., the type of coverage, the coverage policy limits, have been met prior to starting work. According to an April 21, 2011 Administrative Letter issued by Virginia’s State Corporation Commission Bureau of Insurance, in Virginia there’s a “widespread misunderstanding regarding the proper use of [COIs], as well as intentional misuse of such certificates.” In particular, the letter states that “some private and public entitles are requesting insurers and producers to issue certificates of insurance that are inconsistent with the underlying insurance policy or contract.” Examples include “indicating that a person is an additional insured contrary to the terms of the policy” and “that a party will be notified if the underlying policy is cancelled if that party is not entitled to notice under the terms of the policy.” The Administrative Letter can be found here. Legislation passed in March is designed to address these issues.

The new legislation amends the Unfair Trade Practices chapter in Title 38. Insurance of the Code of Virginia and adds a new section on certificates of insurance, § 38.2-518. Specifically, the new section prohibits a person from (1) issuing or delivering a COI that attempts to confer any rights upon a third party beyond what the referenced policy of insurance expressly provides; 2) issuing or delivering a COI (except when the COI is required by a state or federal agency) unless it contains a statement substantially similar to this: “This certificate of insurance is issued as a matter of information only. It confers no rights upon the third party requesting the certificate beyond what the referenced policy of insurance provides. This certificate of insurance does not extend, amend, alter the coverage, terms, exclusions, or conditions afforded by the policy referenced in this certificate of insurance.” It prohibits a person from 3.)knowingly demanding or requiring the issuance of a certificate of insurance from an insurer, producer, or policyholder that contains any false or misleading information concerning the policy; and 4.) knowingly preparing or issuing a COI that contains false or misleading information or that purports to affirmatively or negatively alter, amend, or extend the coverage provided by the policy. Further, 5.) no COI may represent an insurer’s obligation to give notice of cancellation or nonrenewal to a third party unless the giving of the notice is required by the policy. These provisions apply to all certificate holders, policy holders, insurers, insurance producers, and COI forms issued as statement or summary of insurance coverages on property, operations, or risks located in Virginia. The new legislation also authorizes the State Corporation Commission to regulate issuers and requesters of COIs for the first time. Click here for the text of the bill as passed.

Posted
by

Established in 1934 by an executive order and then made an independent agency in the Executive Branch by Congress in 1945, the Export-Import Bank is the official export credit agency of the United States whose mission is to assist in financing the export of U.S. goods and services to international markets. In 2011 alone, Ex-Im financed approximately $32 billion in U.S. exports, sustaining 290,000 American jobs. Because of the fees and interest it charges borrowers, Ex-Im is a self-sustaining entity which, since 2005, has returned a profit to the U.S. Treasury.

On May 15, 2012, Congress passed the Export-Import Bank Reauthorization Act of 2012 (H.R. 2072), which extends Ex-Im’s authority for an additional three years and, by 2014, will raise the bank’s credit exposure ceiling from $100 billion to $140 billion. President Obama is expected to sign the Act into law before May 31, 2012, when the bank’s charter is scheduled to expire.

To learn more about this, click here to read the client alert that was written by Jessica R. Berenyi.

Posted
by , and

Effective July 1, 2012, all of the existing statutes governing mechanics liens, stop notices and payment bonds in California will be repealed and replaced by updated statutes. The law will also result in new statutes governing stop notices (on both public and private works), payment bonds and related claims. The law relocates and renumbers the Mechanics Lien Law, but many of the provisions are substantively the same. Pillsbury attorneys prepared a handy chart that will assist those of you familiar with the old statutory scheme to retool for the new layout. To learn more about this, click here to read the client alert and chart.

Posted
by

Maybe this is the ying to the yang of the American Society of Civil Engineers report that Paul Levin blogged about earlier this week. The Urban Land Institute and Ernst & Young just published Infrastructure 2012: Spotlight on Leadership, in which they detail how state and local governments have decided not to wait for funding from the federal government. It has become like Waiting for Godot (or perhaps Waiting for Guffman). In a Presidential election year the federal government is even more gridlocked than normal — if you can believe that.

But that gridlock doesn’t slow down the rate of decay of our infrastructure, so state and local governments are finding ways to get’r done. These range from old fashioned taxes and bonds to Public Private Partnerships. Of course, no one likes taxes and some object to public private partnerships as selling off our infrastructure. But remember, when a private company finances a road, they can’t roll it up and take it home.

If you don’t have time to read the 70 page report, you can see a condensed writeup about it here.

Posted
by

A Bloomberg Law search reveals that more than 1,000 lawsuits have been brought in the past decade for breaches of settlement agreements. To craft a settlement that has staying power, and to avoid buyer’s remorse, both clients and their counsel should learn how to avoid the most common settlement traps. Two of our litigators, Fred Brodie and Bruce Ericson, just wrote an article about five tips that everyone should keep in mind. The article can be found here.

Posted
by

The American Society of Civil Engineers (ASCE) just released a report titled “Failure to Act, the Economic Impact of Current Investment Trends in Electricity Infrastructure” and no, the results are not pretty. According to the report, the gap between the amount actually spent on infrastructure across America and the amount that needs to be spent to maintain the system will reach $107 billion by 2020 and $732 billion by 2040. The Southeast and the Western portions of the country are particularly vulnerable to infrastructure underinvestment, making up approximately half of the country’s infrastructure deficit. Furthermore, don’t forget about the 2003 blackout across large sections of the East Coast, including New York City, that showed the grid’s vulnerability. This report comes on the heels of ASCE giving the United States a grade of “D+” in the Energy category in 2009. D+ seems pretty generous.

The ASCE report predicts that disruption and inconsistent service resulting from faulty electricity infrastructure will lead to a reduction in U.S. GDP of almost $500 billion and half a million fewer jobs in America by 2020. The calculations implicit in this report are simple: if we can spend $100 billion to address this problem over the next decade, the country on the whole will be half a trillion dollars better off. It seems so simple.
However, the crunch of budget deficits at both the federal and state levels means that these profitable long-term investments lose out to short-term cost cutting. President Obama, however, has championed doubling overall infrastructure spending that would also help spur job growth and make up for years of underinvestment, but it is not enough.

Public-Private Partnerships will play an important role in bridging this funding gap by leveraging private investment over the long-term. The private sectors sees this $500 billion in potential savings and the United States needs to think creatively to spur further infrastructure development.

Posted
by

California’s ambitious plan to build a high-speed rail system linking San Francisco and Los Angeles has been getting quite a lot of attention lately. Although the plan has some high-powered supporters in Secretary of Transportation Ray LaHood and California Governor Jerry Brown, the level of enthusiasm in Congress has been mixed, as reported by the San Francisco Chronicle’s Carolyn Lochhead.

Earlier this month the California High Speed Rail Authority approved a revised business plan, slashing its previous $98.5 billion estimate by nearly a third to $68.4 billion, with much of the savings coming from “blended infrastructure.” Translation: rather than construct new track for the entire route, the CHSRA’s revised plan now includes upgrades to existing track at the San Francisco and Los Angeles ends of the route.

Despite these budget reductions, the California Legislative Analyst’s office recommended that the California Legislature not approve Governor Brown’s proposals for $5.9 billion in additional funding for the project, including $2.6 billion in bond funds and $3.3 billion in matching funds from the federal government. The Legislative Analyst’s recommendation was based in part on the fact that only $11.5 billion in funding has currently been committed, and that about $39 billion of an assumed $42 billion to be funded by the federal government has yet to be secured.

Earlier this year, the CHSRA released the shortlist of design-build companies that will be allowed to bid on the first segment in the Central Valley once the RFP is released. The RFP was scheduled to be released this past March, but while the terms and conditions have been approved, the RFP remains unissued. Since the funding is still in a state of flux, this is not altogether surprising.

The design-build companies can perhaps take heart from one segment of the Legislative Analyst’s report, however. Recognizing that the Legislature might want to approve some funding to keep the project moving, the Legislative Analyst suggested that in that case the Legislature could approve funding for the first contract (estimated at $1.5 to $2 billion) and scheduled for award this December.

As someone who has spent many, many hours of my life on Interstate 5 between those two cities, and waiting in one airport when my flights to the other have been delayed, I will continue to follow this project with more than casual interest. If the final product even comes close to the statutorily mandated 2 hour and 40 minute non-stop between Los Angeles and San Francisco, that would beat my average driving time by more than half, and could be a genuine competitor for me with air travel.